Gold adds luster; limit seen on sales

SAN FRANCISCO (CBS.MW) -- Gold futures closed higher for the first time in six sessions Tuesday, up nearly $6 an ounce amid fresh losses in the dollar.

The precious metal's strength sent key indexes for the metals and mining sector up by as much as 5 percent.

Gold for February delivery traded as high as $413.40 an ounce on the New York Mercantile Exchange. The contract, which dropped 5 percent last week, closed up $5.90 at $412.90 an ounce.

"The dollar-denominated gold price continues to react mostly to moves in the currency markets," John Reade, an analyst at UBS, wrote in a research note issued Tuesday.

Leonard Kaplan, president of Prospector Asset Management, told clients that "such a close correlation between the U.S. dollar/euro or the value of the dollar index indicates that valuing gold as a commodity has been virtually useless."

"Gold, over the last year or two, has been behaving not like a commodity, but a currency," he added in his research report.

Indeed, the dollar resumed its sharp descent, sending traders back into gold, which is seen as a safer bet in times of financial uncertainty. The greenback's fresh fall came after European finance ministers issued a joint statement that stopped short of signaling aggressive steps to curb the greenback's tumble. See Currencies Report.

Still, the "the recent decline in inflation expectations implied by the U.S. Treasury market may weigh on the euro-denominated gold price in coming weeks," said Reade.

As a result, he expects "further consolidation" in gold ahead of the G7 meeting in Boca Raton, Fla., on Feb. 6 to Feb. 7. The group represents the seven largest industrial powers.

Gold pact musings

In addition to the weakness in the dollar, gold got a lift from comments by Austria's central bank chief about the outlook for an international pact that limits central bank gold sales, said James Moore, an analyst at TheBullionDesk.com in London.

Klaus Liebscher, head of the Austrian Central Bank, expressed optimism Monday that the 1999 Washington Agreement among 15 central banks will be renewed when it expires in September.

Kevin Kerr, a senior trading director at KWEST Trading International, said KWEST believes the Washington Agreement has a "much greater significance than a mere repeat of statements central bankers had already made."

"This was a powerful, binding agreement, signed by central bank governors on behalf of their respective institutions and/or governments," he said, noting that the European Central Bank was among the signatories, and that 11 of the others who signed the pact are full members of the ECB.

All in all, "this agreement allows investors to finally put fears aside that central banks have abandoned gold as a reserve asset, and are planning to sell all that they have," Kerr said. And if the pact is renewed, "it should spur even more long-term confidence in gold as an asset," he said.

Copper climbs

Elsewhere on Nymex, copper futures climbed to another 6 1/2 year high Tuesday. March copper tacked on 2.35 cents to close at $1.1175 per pound. It's currently trading at its highest level since July 1997.

The March silver contract, however, eased back by 0.7 cent to end at $6.323 an ounce. Futures prices for the metal reached a six-year high a week ago.

March palladium closed higher, adding $5.10 to $224.75 an ounce, while platinum for April delivery closed up $4.30 at $856.20 an ounce.

Metals supplies on Nymex were mixed. Silver stocks totaled 125.3 million troy ounces, unchanged as of late Friday, and copper supplies were down 68 at 275,179 short tons.

Gold inventories stood at 3.38 million troy ounces, up 175,375 troy ounces from the previous session.

Mining stocks up a second session

Mining shares climbed right along with gold and copper, to post their second session of gains.

A 7.7 percent rise in Hecla Mining
HL, +0.21%
to a close of $8.12 led the Amex Gold Bugs Index
HUI, +0.04%
up by as much as 5 percent. The index closed at 229.73, up 3.9 percent.

The Philadelphia Gold and Silver Index
XAU, -0.33%
climbed 2.4 percent to close at 100.93, and the CBOE Gold Index
$GOX
rose 3.1 percent to end at 85.51.

Shares of Freeport-McMoRan Copper & Gold
FCX, -3.86%
closed up $2.45, or 6.8 percent, at $38.50. The New Orleans miner reported a fourth-quarter net income of $200,000, or breakeven, down from $64.1 million, or 41 cents a share, a year earlier as lower output at PT Freeport Indonesia's Grasberg mine, following a fatal landslide in early October, pulled revenue down by 22 percent to $446.1 million. Still, the company was upbeat about restoring access to its higher-grade ore areas in the Grasberg mine by the second quarter. See full story.

Shares of Barrick Gold
ABX, -0.35%
closed at $21.12, up 30 cents, or 1.4 percent, after the Toronto-based company said 2003 production reached 5.51 million ounces at an average cash cost of $189 per pound -- in line with Barrick's expectations. The company expects 2004 output to be between 4.9 million and 5 million ounces at an average cash cost of $205 to $215 per pound.

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